U.S. Stocks Fall Most Since November, Euro Drops on Italy

By Michael P. Regan and Rita Nazareth -
Feb 25, 2013

U.S. stocks sank the most since
November, while the euro and Italian bonds erased early gains,
as Italy’s elections spurred concern of renewed turmoil in
European markets. Natural gas, silver and gold led gains in
commodities. The yen and Treasuries surged.

The Standard & Poor’s 500 Index slid 1.8 percent to
1,487.85 at 4 p.m. in New York after gaining as much as 0.7
percent in the first hour of trading. The VIX (VIX), the benchmark
gauge of U.S. stock options, surged the most since 2011. The
euro tumbled 0.9 percent to $1.3081 after jumping almost 1
percent. Italy’s 10-year yields increased four basis points to
4.49 percent after plunging as much as 28 points. Ten-year U.S.
Treasury note yields decreased 10 basis points, the most since
November, to 1.86 percent.

Italy may require another vote after partial election
results suggested the four-way race may end in a divided
parliament, an aide to Democratic Party candidate Pier Luigi
Bersani said. Bersani, who led in opinion polls throughout the
race, campaigned to maintain the budget rigor of outgoing Prime
Minister Mario Monti. Forecasts by IPR Marketing and state
broadcaster RAI showed Bersani winning the lower chamber and
Silvio Berlusconi with a blocking minority in the Senate.

“We don’t want to see more chaos out of Europe,” Bruce McCain, chief investment strategist at the private-banking unit
of KeyCorp in Cleveland, said in a phone interview. His firm
oversees more than $20 billion. “Any question about whether or
not Italy would be committed to austerity measures after the
elections gets investors concerned.”

Upcoming Data

The S&P 500 last week completed its first weekly loss of
the year after touching the highest level since October 2007 on
Feb. 19. Investors are awaiting U.S. data this week including
the Institute for Supply Management’s factory index, durable
goods orders, household spending, the S&P/Case-Shiller index of
home prices and fourth-quarter gross domestic product. Federal
Reserve Chairman Ben S. Bernanke is due to testify before
lawmakers tomorrow and the next day.

U.S. Commerce Department data on Feb. 26 may show new-home
sales climbed in January, according to a Bloomberg survey. U.S.
GDP probably expanded at a 0.5 percent annual rate in the fourth
quarter, compared with the Commerce Department’s initial
estimate on Jan. 30 that the economy contracted by 0.1 percent.
The data will be released on Feb. 28.

President Barack Obama’s administration released a state-
by-state report on how $85 billion in automatic spending cuts
will degrade programs from defense to education to public
health, as White House officials said they don’t expect to avert
reductions scheduled to start March 1.

‘Our Hope’

“Our hope is that we’ll be able to come to a solution,”
Dan Pfeiffer, a senior Obama adviser, said in a conference call
with reporters yesterday. “But there seems to be nothing the
Republicans are saying right now on Sunday to suggest that by
Friday they’re going to change their position.”

Among stocks moving today, gauges of financial, commodity
and industrial shares tumbled more than 2 percent to lead
declines among all of the 10 main industries in the S&P 500.
Bank of America Corp., Caterpillar Inc. and Alcoa Inc. sank at
least 2.5 percent for the biggest declines in the Dow Jones
Industrial Average, which sank 216.4 points to a one-month low
of 13,784.17. Trading of S&P 500 companies was 8.5 percent
greater than the 30-day average.

Market Movers

Chesapeake Energy Corp. (CHK) slumped 6.8 percent after agreeing
to sell a stake in an Oklahoma oilfield to China Petrochemical
Corp. for less than one-third of its estimated value. ITT
Educational Services Inc. tumbled 17 percent after disclosing
that U.S. regulators subpoenaed documents related to private
loan programs for its students. Hertz Global Holdings Inc., (HTZ) the
largest publicly traded U.S. auto-rental chain, gained 1.7
percent after projecting profit and sales that beat estimates.

The Chicago Board Options Exchange Volatility Index, or
VIX, climbed 34 percent to 18.99, the highest level of the year
and its biggest advance since August 2011. The VIX, which
measures the cost of using options as insurance against losses
in the S&P 500, closed at the lowest level since April 2007 a
week ago.

The euro weakened against 15 of 16 main counterparts after
gaining against most earlier. Sterling recovered losses versus
the euro after depreciating to the weakest level since October
2011. Moody’s Investors Service lowered Britain’s credit rating
on Feb. 22 by one level to Aa1 from Aaa. Chancellor of the
Exchequer George Osborne said he won’t give in to opposition
calls to drop austerity policies after the downgrade.

European Movers

Among European stocks, Deutsche Boerse AG jumped 5.6
percent, paring a gain of as much as 12 percent. CME Group Inc.,
the world’s largest futures exchange, has approached the
Frankfurt-based exchange to consider beginning talks on a
merger, according to four people familiar with the situation.

Reckitt Benckiser Group (RB/) Plc slid 3 percent, the most in
nine months, as U.S. regulators approved two rival generic
versions of its Suboxone heroin-dependency treatment.

Yen Jumps

The yen strengthened more than 2 percent against all 16
major peers after weakening earlier. Japan’s currency and the
pound have dropped more than 5 percent this year, the biggest
decliners among 10 developed-nation currencies tracked by
Bloomberg Correlation-Weighted Indexes.

Earlier losses in the yen came amid growing speculation
that Japanese Prime Minister Shinzo Abe will nominate a central
bank chief who favors stimulus. Abe is likely to call on Asian
Development Bank President Haruhiko Kuroda, who said this month
there is “substantial room” for easing, according to two
officials with knowledge of the discussions.

“The market seems to have formed an opinion that Kuroda is
a dove and if he indeed becomes the new BOJ governor, he would
be willing to do much more to support growth,” said Geoffrey Yu, a senior currency strategist at UBS AG in London.

The S&P GSCI gauge of 24 commodities rose less than 0.1
percent after last week’s 2.6 percent drop, the biggest in 11
weeks. Silver for immediate delivery gained 1 percent for a
third straight gain, the longest streak in a month, and spot
gold increased 0.8 percent to $1,594.35 an ounce. Wheat, cotton
and nickel lost more than 1.5 percent for the biggest declines.

Energy Markets

U.S. crude oil futures slipped 2 cents to settle at $93.11
per barrel. U.S. Secretary of State John Kerry signaled that a
diplomatic solution to a standoff over Iran’s nuclear program is
possible. U.K. natural gas for next-day delivery reached 77
pence a therm, the most in more than a year, as demand rose on
colder-than-average weather. U.S. natural gas jumped 3.8 percent
to the highest price in more than two weeks on forecasts for
cold weather in the central and eastern U.S. that would stoke
demand for heating fuel.

The shekel remained lower versus the dollar, weakening 1
percent, as the Bank of Israel kept its benchmark interest rate
unchanged at its lowest in more than two years as rising house
prices balanced slowing growth and inflation. Governor Stanley Fischer and the monetary policy panel held the rate at 1.75
percent. Ten of the 22 economists surveyed by Bloomberg forecast
the decision, while the remainder predicted a quarter-point
reduction.